INCOME TAX

Whether benefit of section 80-O would be available if technical and professional services, though rendered outside India, are used by Foreign Government or enterprise in India

Circular : No. 700, dated 23-3-1995.

Section 80-O of the Income-tax Act, 1961, provides for a deduction of 50% from the income of an Indian resident by way of royalty, commission, fees or any similar payment from a Foreign Government or enterprise :

(a) in consideration for the use outside India of any patent, invention, model, design, secret formula or process, etc.; or

(b) in consideration of technical or professional services rendered or agreed to be rendered outside India to such Foreign Government or enterprise.

In either case, the requirement is that the income should be in convertible foreign exchange.

It has been clarified in the Explanation (iii) to section 80-O that services rendered or agreed to be rendered outside India [i.e., item (b) above] shall include services rendered from India but shall not include services rendered in India.

A question has been raised as to whether the benefit of section 80-O would be available if the technical and professional services, though rendered outside India, are used by the Foreign Government or enterprise in India.

The matter has been considered by the Board. It is clarified that as long as the technical and professional services are rendered from India and are received by a Foreign Government or enterprise outside India, deduction under section 80-O would be available to the person rendering the services even if the foreign recipient of the services utilises the benefit of such services in India.